A Happy Life: from Courtroom to Classroom

By Sidney B. Silverman

In 1960, at the age of twenty-seven, the author, Sidney B. Silverman, started his own law practice. He began by tackling corporate giants and never stopped until he retired in 2001. He was an aggressive, street-smart trial lawyer.
Upon his retirement, Silverman enrolled in graduate school at Columbia University. Concentrating in philosophy, he received a masters degree in 2007. He was as competitive in the classroom as he was in the courtroom.
After graduating he looked for another challenge. He had played chess for many years. Now he wanted to play in tournaments and become a chess master. Although he tried hard to become an expert chess player, he failed.
A Happy Life chronicles Silvermans adventures, before, during and after his long and successful career.
What pieces of wisdom can he share that will help readers to find their best, most successful retirement years? Read on.

• Language: English
• Publisher: iUniverse
• Release date: Jun 29, 2009
• ISBN: 9781440150869

Sidney B. Silverman

Sidney Silverman, a trial lawyer for over forty years, enrolled in graduate school at Columbia University upon retiring. At seventy-four, he earned a master of arts degree. He is the author of the award-winning memoir A Happy Life: From Courtroom to Classroom. He lives with his wife in New York City.

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Part 1

Practicing Law

1

Getting Started

Thanks to some highly publicized reports of badly behaving lawyers, the legal profession has become the target of comedians and whoever it is that sends out comic material over the Internet. The comedy derives from grossly exaggerated portrayals of shockingly improper conduct. Lawyers, we are told, are beneath contempt, only marginally human. My experience as a lawyer has brought me into contact with hundreds of wonderful people, lawyers, judges, clients, clerks, office workers. Of course, people must look out for themselves in this world, but the legal community as a whole is populated by those who sincerely want to increase the amount of justice in the world. For every bad apple with a license to practice law, there are thousands of kind, intelligent, upstanding, and ethical men and women. I salute them. I am proud to salute them, and I hope that what follows will to some extent counteract our day’s fascination with the bad apples.

I was not called to the bar; it happened by default. I studied Russian language at Colgate University and, upon graduation in 1954, planned to enlist in the army. The cold war with the Soviet Union was heating up and a proficiency in Russian could be put to good use. The army maintained an intensive foreign language program in Monterey, California. My Russian language professor assured me I would be tapped for the school. After Monterey, I would serve in Hamburg, Germany, live off base, my rank classified, and dress in civilian clothes. My professor also told me that in Hamburg, the ratio of women to men was nine to one. My immediate, post-college future seemed set, but the army turned me down because of a hip injury. I was not going to be a foreign spy. I needed to do something, something suitable for a college graduate. My choices seemed few. With a minimum of consideration, I enrolled in Columbia Law School.

In due course, I began work at a New York firm. As the most junior lawyer, I was relegated to the library and assigned small points of law to research. I wanted to get ahead quickly, but I felt I was on a slow and stodgy path to nowhere. The lawyers receiving responsible assignments were specialists. Many had gained expertise working for the government. I discussed my future with a sympathetic partner. Securities law was in its infancy but showed promise of booming. He suggested I work for the Securities and Exchange Commission in Washington, and then return to the firm. The partner predicted it would take five years to become an expert.

I got a job with the SEC in the department charged with regulating investment companies. I worked hard, advanced, and learned a lot. I lived in a large apartment with three other government lawyers. One of my roommates was Mordecai Rosenfeld, also a transplanted New Yorker. He was a Yale Law School graduate. He was smart, charming, and funny, but he had a serious drawback: his appearance. He had a large mop of black hair covering his forehead, making him appear to be what he was not, a lowbrow. His features, especially his ears, were outsized. Because of his homely appearance, he was shy until he got to know you. Then, he opened up. He was popular, but only with men. Like me, he was Brooklyn born and bred. We were homeboys and bonded.

In 1960, Rosenfeld and I said good-bye to Washington, returned to New York, and formed a partnership. We rented a one-room office for $75 a month in a rundown building in downtown Manhattan, and furnished it with an abandoned partner’s desk and chairs stored in the basement of the building and purchased from the janitor for a tip of $10. The desk had two openings on opposite sides. He sat on one side and I sat on the other.

I was twenty-seven. I paid no attention to my shabby surroundings; what excited me was my name on the door. I was a partner in the firm of Rosenfeld and Silverman. My career had begun.

Rosenfeld had worked in New York for Abe Pomerantz, a lawyer who specialized in stockholder actions. He may have even invented them. It was Rosenfeld’s idea to bring stockholder suits, and mine, as the specialist in investment companies, to sue the managers of mutual funds.

Our first client was my partner’s four-year-old nephew, Joel Benjamin Rosenfeld. His father had purchased stock for his son at his birth, in One William Street, a mutual fund managed by Lehman Brothers. Under the law, any stockholder, even a four year old, can sue. The action is nominally against the corporation but only because it has failed to sue those who have wronged it. The corporation’s claim is pursued derivatively by the stockholder on behalf of the corporation and the recovery inures to the corporation. The judge orders the corporation receiving the benefit to pay the plaintiff’s legal fees. Otherwise, the corporation would be unjustly enriched. Lehman, then the quintessential and all-powerful investment banking firm, was our target.

Mutual funds are pools of liquid assets, contributed and owned by investors and managed by professional investment advisers. By pooling their money, small investors, who could not on their own afford to hire an investment adviser, can engage skilled money managers. Mutual funds are controlled and managed by their investment adviser. Under the law, one who assumes control over another’s assets is a trustee and is held to the highest ethical and moral standards. Under the ancient common law, the trustee could not charge for his services; he served because it was his duty to do so. The rule was consistent with Kantian concepts of morality. One did what was right because it was right and not from inclination, pleasure, or desire for reward. Modern law relaxes this ban and allows a fiduciary to be paid, provided that the fee is fair.

Lehman charged the One William Street fund 0.005 percent of its net assets, the standard fee charged by fund managers. Lehman also managed another investment company, Lehman Corp, a closed-end investment company. It was customary to charge closed-end funds a flat fee rather than a percentage of assets, and Lehman charged Lehman Corp an annual fee of $250,000. Both funds were about the same size and held stock in the same companies. We thought that the percentage fee charged One William Street flunked the fairness test. It came to about $1 million, four times the fee charged Lehman Corp.

While in Washington, we scribbled out the complaint. After opening our office in New York, we turned over our handwritten draft to a public stenographer who typed it. On our second day in practice, the two partners walked to the federal court and together handed the complaint to a clerk for filing. We were off and running.

I was impressed with myself. In just three years, I had leapt from the library and the lower echelons of the Securities and Exchange Commission to senior partner and co-head of a litigation firm handling a million dollar lawsuit.

Simpson, Thatcher, and Bartlett, a large and powerful law firm, represented Lehman. They were understandably perplexed when they received the complaint; Rosenfeld and Silverman was not listed in any directory of lawyers in the New York telephone book, or even on the directory in the lobby of the building given as its address. The firm thought the suit might be a hoax. An investigator was hired; he came to our office and quickly all doubts were resolved. Rosenfeld and Silverman did in fact exist; both of its partners were members of the New York bar.

On the morning of our third day in practice, Rosenfeld got to the office early and when I arrived was in an agitated state. He held in one hand our only reference book, Wiesenberger’s Manual of Investment Companies. The book listed every investment company and its adviser, the rate and dollar amount of fees charged, the officers and directors, the ten-year growth in net assets, and the yearly and compounded rate of growth of the fund’s investments.

Rosenfeld began a harangue, speaking quickly and loudly. His hands moved in time with his words: I was up all night studying Wiesenberger. From the hundreds of funds, I picked the twelve with the worst performance records but who paid their advisers among the highest fees. Poor performance should not be rewarded; the adviser should, instead, be penalized. A straight percentage fee makes no sense. Take a mutual fund that has $1 billion of net assets and charges a flat fee of 0.005 percent which comes to $5 million. Whether a fund is $500 million or $1 billion, the advisers must evaluate all available publicly traded stocks, and then determine the percent of the fund’s assets that should be invested in particular stocks. Say the manager decides that 2 percent should be invested in General Motors and its stock is selling for $50. If the fund is $1 billion, the manager buys 400,000 shares; if $500 million, then 200,000. Why should the manager get twice as much for what amounts to the same amount of work or thought? Maybe the fee should be slightly more because of the additional responsibility, but not twice as much. In fairness, the fee of 0.005 percent should be reduced as the assets grow. Let’s bring more suits. The last line was said slowly and softly. Rosenfeld grinned from one oversized ear to the other and sat down.

We had a problem: we lacked clients who owned stock in the funds Rosenfeld had targeted. He suggested, We canvass our relatives and friends. If they own shares and are willing to be plaintiffs, fine. Otherwise we purchase for our relatives a few shares in each of the funds. Under the law, a plaintiff must be a stockholder at the time of the wrong. In our cases, the wrong was a continuing one, as the excessive fee was charged each day. A new stockholder could attack present and future fees, but not past ones. The point was to correct the practice of excessive fees, which our newly honed shareholders had standing to do.

We checked with our family and friends. A few owned shares in the right funds, but for the most part we purchased shares, for my mother, Rosenfeld’s mother, my sister, and his brother. The fledgling firm thereupon commenced a dozen new suits against America’s oldest and mightiest investment banking firms.

Rosenfeld’s selection of poorly performing funds was clever. It answered the argument invariably made when compensation is attacked as excessive: How can you put a price tag on the Mozart of finance? The funds had grown large through aggressive sales campaigns, rather than smart investment decisions. The managers were certainly not Mozarts. We joked that the managers relied on their tuchas (derrières to those who do not speak French), not their brains in purchasing stock, and that it took the same tuchas to manage such funds, regardless of size. We called the suits the same tuchas cases.

We were able to draft the complaints and get them filed without the assistance of any other lawyers or even a secretary, but had no grasp of tactics. The powerful firms representing the mutual funds and their advisers blindsided us. The law gave them twenty days to respond to the complaints but the period was more often extended than observed. In each case, the defendants made requests to extend the twenty-day period. We knew the requests had to be granted but failed to appreciate the significance of the fact that the adjourned date for all thirteen actions was the very same. On the due date, the opposing firms served every conceivable motion supported by outsized legal memorandums, oxymoronically called briefs. We were overwhelmed by the flood of paper.

Rosenfeld arranged a meeting with Pomerantz, the dean of the stockholder bar and his former mentor. The first thing you noticed about Pomerantz was his size: he was fat. The second was his gift of gab. He occupied a large corner office at the end of a corridor. I was there not more than ten minutes when Pomerantz rose, walked to the back of his office, and opened a door to a small closet containing a sink on one side and a bar to hold coats on the other. He closed the door but the noise announced his activity; he was urinating into the sink. When he opened the door, he pointed to the sink and said, I call it my pissing bowl. You are free to use it anytime.

Pomerantz loved the cases but criticized the way they were started; A federal judge assigned the thirteen cases will immediately sense that the lawyers, not the clients, were the instigators. This is a crime, called barratry. You could be disbarred. Suddenly I fell from the co-head of a litigation firm handling thirteen big cases to a disgraced lawyer, my career ended.

Pomerantz took pity on us. He offered to amend the complaints by replacing our relatives with stockholders who owned shares long before the commencement of the actions. The amendments caused automatically the withdrawal of our thirteen complaints. The defendants then had to remake their motions against the amended complaints. By this process, our cases were replaced by new ones and our crimes buried. Pomerantz said his firm would take charge and we would assist. He proposed a division of fees, sixty–forty, in favor of his firm. We, of course, accepted the generous offer.

Years later, I learned that a Pomerantz contract was not as sacrosanct as, say, an international treaty. In order to gain control of identical stockholder actions started by several different lawyers, he promised the others shares in the fee. None knew it then, but Pomerantz gave away more than 100 percent of the fee. If he lost, it made no difference. The fee was contingent and 150 percent of zero is zero. If the case was won and a fee awarded, Pomerantz called all the lawyers to a meeting. Sitting around his large conference table, he glowered at each lawyer, and then said: I worked hard to win the case and get us a big fee. Based on my commitments to you, I gave away more than 100 percent of the fee. It is wrong that I work, you make money, and I get nothing. The understanding must be revised. My firm gets 50 percent and you share the balance equally. The others protested. Typical were cries of, Abe, I would not have given my case to you for a chance to earn 10 percent of the fee. Pomerantz prevailed. He did it over and over again and got away with it. Why? He was the best, and a small share of his fee was better than what the others could earn on their own.

After a lot of work extending over several years, the funds’ advisers agreed to reduce their charges and Pomerantz was awarded a fee based on a percentage of the benefit realized by the funds. Since the funds were benefited, they should have paid the fees, but to make it more palatable to the judges who had to approve the fees, Pomerantz required the advisers to bear the expense. The fees, in the aggregate, exceeded $1 million.

Pomerantz tried to chisel us, but we hung tough. I said, These were our cases, not yours. We worked hard on them. We have a contract and I’m not giving up even 0.005 percent. He laughed and, probably for the first time, honored a deal. The day Rosenfeld and I received our share was a singular day in our lives. We held the check in the air, clicked our heels, and gleefully shouted, Poor no more.

Pomerantz taught us the trade. He also introduced us to lawyers who referred cases to him. Soon they turned over cases to us that were too small for the Pomerantz firm.

Rosenfeld and I had a viable law practice. You would think that two formerly poor young lawyers, now successful would stay together. I often thought we should have, but we did not. In 1964, I was the law offices of Sidney B. Silverman; he was the law offices of Mordecai Rosenfeld. Rosenfeld and Silverman was no more. Neither of us could get over what seems now a petty incident. The breakup of a law firm is a lot like a divorce. We had been close friends, members of each others’ wedding party, and we socialized out of the office as well as spending five days a week together. After the split, we never talked to or saw each other again.

2

Learning My Trade

In stockholder actions, the plaintiff knows only what the corporation has chosen to disclose. Much more is required to prepare a case for trial. And that much more takes the form of discovery requiring the corporation being sued to produce documents and make witnesses available for pretrial examination. New York law provides, however, that in stockholders cases discovery may not go forward without a court order. The reason: a history of abuse. Frivolous cases were settled, because the cost of complying with discovery was much larger than the possible settlement.

Without discovery, the stockholder is prevented from gathering evidence, and good cases, as well as bad ones, are unable to proceed. To obtain a court order, the stockholder lawyer must demonstrate that the action has merit. The order must first be approved by the clerk before it is submitted to the judge. The clerks routinely made me wait for hours until they reviewed my application. More often than not, they claimed a minor error prevented submission, and I had to start all over again the next day. After the clerk’s approval, I waited for days for the judge to sign the order; sometimes he did, most times he did not.

All this changed after Hugo Rogers entered my life. He was appointed a referee by a state court judge to advise whether a settlement was fair and to issue a report. This was the usual procedure in stockholder actions. I was the proponent of the settlement and seized the opportunity to make an important friend. Rogers, a strikingly handsome and dignified man, was the former head of Tammany Hall and in the late 1940s had been borough president of Manhattan. When I met Rogers, he held no political office. A politician out of office should have no clout, but the former politico’s appearance and demeanor exuded power. The clerks knew him. When we entered the clerks’ offices, the chief greeted Rogers and asked, What can I do for you today? Rogers introduced me and said that Mr. Silverman will explain the application. The clerk listened attentively, found the application in order, and took it directly to the judge. Within a short time, the order was signed. Why did Rogers help me? He got a small share of my fee.

After a while, I went alone to the chief clerk. Remember me? I said, I’m Sidney Silverman. I usually come with Hugo Rogers but he could not make it today. It took longer, but I got the order signed and saved some money.

Rogers also helped me maneuver in other areas. I joined a luncheon club called the Lawyers Club. It was located on the top floor of an old downtown building and its dining room had great views of New York Harbor and the Hudson River. Its outstanding feature was a floor to ceiling stained glass window. Rogers was my first guest. As we waited to be seated, he said the only tables worth sitting at were those alongside the stained glass window. To the question, How do I get such a table? he replied, Give the maitre d’ a couple of dollars. I left Rogers, moved ahead of others waiting to be seated, and spoke to the maitre d’: Hello, captain. My name is Sidney Silverman. I’m here with Hugo Rogers, former borough president. When it is my turn to be seated, I want a table by the window. I slipped him $5. When my time came, the maitre d’ greeted me by name and escorted us to a table by the window. It cost me an extra $5 every time I lunched at the Lawyers Club, but I always had one of the best tables. Someone who saw me seated at one of those special tables and did not know any better might have thought I defended the mighty corporations I sued.

Rogers had other tricks. My wife and I were his guests at a formal dinner. The main dish was steak. To the waiter’s question, How do you like your steak? we both replied, Rare. Rogers took out a $10 bill, ripped it in half, and gave one half to the waiter. He said, If their steaks are rare, you will get the other half. After bringing us our steaks, the waiter hovered. I cut into my steak and it was rare. Rogers handed the waiter the other half of the bill. My wife nudged me and said sotto voce, I lost my appetite. Let’s leave. To which I whispered back, We can’t. I need him.

While I had argued motions, written briefs, examined witnesses before trial, and settled cases, I had yet to try a case. I was anxious. What if I was inept? Most of my cases were in New York or Delaware. My first trial, I thought, should take place in a distant state. If I were a disaster, the news might not reach New York and I could change fields.

I had a case pending in Denver, Colorado, that came to me through a lawyer who referred his clients to Pomerantz. He had rejected the case as too small and suggested I might take it. The client, Nat Gluck, and the lawyer came to my office.

Gluck was a retired blouse manufacturer living in Brooklyn. He was short, wore open-collared shirts under a plaid jacket, and always seemed in need of a shave. Gluck was obsessed with the stock market. He owned shares in hundreds of corporations. In order for the stockholders to cast votes on the election of directors and other matters placed before them, corporations send proxy solicitation material (proxies) to shareholders. The proxy, among other things, sets forth the compensation of the board members and principal officers, and every material arrangement, or deal, they have with the company. Such deals are called self-dealing transactions. Gluck read the proxies carefully and circled in red every suspicious deal. He was so outraged by self-dealing that he literally turned red when reading the passage, as he always insisted upon doing. Before we met, he took the proxies to his lawyer. After our first meeting, he called only me. Who needs a middleman? In the blouse business, I did, and I resented it. Once I met you, I knew I could deal direct.

What did Gluck get out of suing? The cases he brought were discussed in proxies and press releases. On nice afternoons, Gluck sat on a bench in his neighborhood, surrounded by other old, retired cronies. Gluck discussed his lawsuits, showed the complaint and the company’s press releases. Among his crowd, he was a big man, a corporate warrior. Bragging rights were all Gluck wanted and all he got.

The facts in the Denver case were straightforward. They involved a man named Harry Trueblood and a small oil and gas company, Consolidated Oil and Gas. Trueblood was the chief executive officer and chairman of the board. He owned a one-thousand-acre sheep farm in the Rocky Mountains that he had purchased for $50,000, $50 per acre. A classic case of self-dealing arose when Trueblood sold the farm two years after he purchased it to the oil and gas company for $500 per acre.

Although self-dealing transactions are disclosed, important details needed to put flesh and blood on the bare bones are shielded from stockholder scrutiny. Discovery levels the playing field. In Consolidated Oil, I took lots of discovery, knew as much as the defendants, and was ready for trial.

Trueblood and the directors conceded, as they had to, that the sale was a self-dealing transaction. They disputed the allegation that the transaction was unfair and in fact contended that the corporation received a great bargain when it bought the property.

I established my case by putting into evidence the self-dealing transaction and the relevant documents surrounding it. That was all I needed to do. The burden then shifted to the defendant directors. They had to prove the transaction was fair and that in approving it, they exercised sound business judgment.

Under questioning by the company’s lawyer, all seven directors testified. At the end of each director’s testimony, it was my task to cross-examine. My only trial experience was as Pomerantz’s assistant. He was a skillful trial lawyer and an excellent teacher. He advised: let the judge know at the beginning exactly where you are going. A good lawyer’s first question should resemble a headline in the Daily News. I knew from the depositions that the price of $500 per acre was Trueblood’s asking price and the directors had not proposed a lower price. My opening questions ranged from: There was no arm’s-length bargaining or bargaining of any kind because you accepted the price asked by Mr. Trueblood and made no effort to obtain a lower price, is that correct? to: You rubber-stamped Mr. Trueblood’s offer because you were more interested in helping him than in protecting the stockholders, is that correct?

The witnesses were shocked by the bluntness of my questions. They were unaccustomed to criticism and angered that a young lawyer from New York was treating them in this rough way. The witnesses all denied my opening questions. One of them shook his finger at me and said, You are wrong. The board worked hard to make sure the deal was fair.

I liked that answer. I wanted the case to turn on whether the deal was fair at the time it was made. In follow-up questions, I got into the nitty gritty of the arrangement. The company had planned to convert the sheep farm into a ski resort and residential community, a costly project Trueblood could not afford. In such circumstances, a purchaser can obtain a bargain price. As it turned out, the corporation gave Trueblood a ten fold profit on his original investment. That was the only appealing part of the case.

The big issue, and the one on which I lost the case, was whether the land was worth at least $500 per acre. The sheep farm was on Eagle Mountain, a suburb of Vail. At the time the case was started, Vail had just begun operations. By the time of trial, it was one of the most popular and successful of ski areas. Sports Illustrated ran a feature on Vail, complete with a picture of a $500,000 home owned by one of the Murchisons, the Texas billionaire oil, cattle, and real estate kings. There was no question that by the time of trial, the land was worth many times more than $500 per acre. I argued that the present value was not the correct criterion. What mattered was the value at the time of purchase. In my opinion, none of the directors who approved the purchase of the land could have known what the land would be worth in the future. But, all of them claimed to.

Trueblood testified that he was willing to return the corporation’s money plus interest and repurchase the land from the corporation. It is impossible, and rightly so, to get damages on a deal that turns out to benefit the corporation. Anyone but a young, unsophisticated lawyer, concerned with finding out whether or not he is a capable trial lawyer, would have understood the principle involved and would have dropped the case.

Although I lost the case, I gained confidence. It was my first trial and I did a good job. I also learned a valuable lesson, one I never forgot. In a stockholder case, you must make sure that the transaction harms the company; an evil purpose is not enough. The Eagle County deal was arranged as an accommodation for Trueblood; he could not have sold the land to an unrelated party for $500 per acre. Further, he had no intention of benefiting the corporation and would not have parted with the land, if he had known that in a few years it would be worth fifty times as much as he had paid for it. While it was wrong to use corporate assets to assist their CEO, as it turned out, the corporation was benefited, not harmed.

Years later, the importance of the real estate development dwarfed the company’s other activities and it changed its name from Consolidated Oil to the Eagle County Development Corporation. Some years later, Trueblood died and the attorney who opposed me became president of the company. I was happy for the lawyer. He had been kind to me and complimented me on my trial preparation. He said, You have squeezed everything you could out of a very weak case. I would not like to defend a good case against you. It cost him nothing to be nice to a young, inexperienced lawyer, but it meant so much to me.

3

Making Lucy Cry, Twice

I developed a following among certain litigious-minded stockholders. They had two things in common: they loved to star in corporate actions and they were all Gluck’s bench mates. My big problem was not getting cases, but deciding among the many offered. Since my fee was contingent on success and each case involved a large investment of time, I tried hard to select winners. But I’m human and all too often circumstances, other than the merits, clouded my judgment. A cloud appeared when Philip Rosen said, You must sue Lucille Ball. I own stock in Desilu Corporation. Lucy is a great comedienne but a bubblehead in business. Desi was a top-notch businessman, the president of the company, and received a salary of $500,000. He got a separate salary as an actor. When he died, Lucy became president at the same salary. Her salary as an actress is also $500,000, making her total compensation $1 million.

I knew compensation cases can be won only if the amount in question constitutes waste. Waste is defined as a sum no rational, knowledgeable person would approve. Lucy’s combined compensation was large, but not by Hollywood standards. The odds of winning were low. I took the case anyway. Why? Famous actresses are rarely parties in corporate litigation. With Lucy as a defendant, the media would be all over the case and, who knows, I might see my name in boldface print.

Lucy was represented by Mickey Rudin, a famous Hollywood lawyer. At her deposition, I asked not a single question about her services as a performer. I asked business questions: How many shares of common stock were outstanding? What were the rights of the preferred stockholders? Who was the largest creditor?